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01 Mar

Investment Strategies for Your Child’s Future

On: 1st March, 2016   //   By: admin

Choose Investment Strategies to Fund Educational Goals

If you’re been paying attention to the news, you’ve heard that the cost of sending a child to college has skyrocketed in recent years. The rate of increase in college tuition is roughly twice the rate of inflation. While your children may qualify for financial aid or win scholarships, it’s best to prepare for the future with investment strategies to ensure their educational futures.

There are a few options for investment strategies to fund educational goals. Here are the main types of funds to consider setting up for your children or grandchildren:

529 Plans

The 529 Plan options are some of the most effective ways to save for your child’s education without incurring additional tax liability for yourself. A 529 Plan allows you to contribute a relatively large amount without any penalty on your tax return. You can contribute up to $14,000 without a gift tax to a child’s 529 fund. There’s no limit to how many people you can give that $14,000 to, either. When it’s time to pay for school, there’s no tax on any money withdrawn as long as it is used for qualified educational expenses. There are two types of 529 Plans:

  • 529 Savings Plan: The savings plan allows you to set aside money for your child’s educational expenses without being taxed on the amount. It works similarly to a 401(k) or an IRA. As long as the money stays in the account or is being used for educational purposes, there’s no tax on the funds.

 

  • 529 Prepaid Tuition Plan: When you use a 529 Prepaid Tuition Plan, you lock in today’s tuition prices at a qualified state educational institution. If your child ends up attending school out-of-state or at a private institution, you can transfer the value of the funds or receive a refund on the amount.

IRAs for Educational Funding

Using an IRA to fund your child’s college can be a solid strategy. You can choose the specific ways your money is invested, and money pulled out of your IRA to pay for college is not taxed, as long as the expenses qualify. There are a couple of drawbacks to using an IRA to save for your child’s college expenses, however. You may be paying for college, but it’s easy to dip too much into your retirement wealth. Make sure you have enough other retirement savings to allow your IRA to support educational expenses.

Second, IRA distributions can be counted as income on your child’s financial aid applications the following year. So if you think that you’ll receive a significant amount of distributions, you may want to choose another way to fund education expenses.

Aura Wealth Advisors frequently works with clients that are seeking reliable investment strategies for educational purposes, but without sacrificing their own financial futures. Make an appointment today to learn more about the options available for educational savings planning.

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